Business

Big Adventures on the Small Screen

Peter Gerwe brought FM radio and “Sex and the City” to Russia, and in the process created the country’s No. 3 TV channel.

By Alex Osipovich

When he was fresh out of college, Peter Gerwe got a job producing rock concerts in California. But now he’s got an even cooler gig — he manages the number-three TV network in Russia.

“It surprises me every day,” says Gerwe, reflecting back on his unusual career. When he was growing up in a family of seven kids, he never had much money and he never expected to become a wildly successful entrepreneur. But that’s precisely what happened. Gerwe is the creator of STS, which recently surpassed NTV to become Russia’s number-three network among viewers between the ages of six and 54. In fact, the only two networks with higher ratings are the state-controlled giants Channel One and Rossiya. So how did this 45-year-old American — who peppers his speech with “like” and “cool” — become one of the undisputed kings of Russian media?

It all started with rock and roll. After graduating from the University of Santa Clara with a degree in communications, Gerwe went to work for Steve Wozniak, one of the founders of Apple Computer. Wozniak had started a music festival, with a brand-new feature for concertgoers: giant video screens above the stage. Part of Gerwe’s job was to put filler content on the screens when nobody was performing. Working with satellite technology and the fledgling MTV channel, Gerwe made a name for himself as the vice president of a small production company.

In 1982, Gerwe contacted the Soviet authorities about a possible gig. At the time, the Kremlin was interested in live TV contacts between the US and the USSR; to them, it seemed like a good way to promote a positive image of the Soviet Union. So Gerwe got an invitation to Moscow. When the 22-year-old college graduate arrived at the airport, he was met by three stodgy Soviet officials. “You could see the disappointment on their faces when they saw this kid, with hair too long, and dressed a little too informally,” recalls Gerwe. “It took me thirty minutes to convince them I actually was the vice president.”

Eventually, Gerwe gained the trust of the Soviet authorities, and he produced a number of satellite TV exchanges throughout the 1980s. In doing so, he made contacts in the world of Soviet broadcasting. So when Mikhail Gorbachev took some tentative steps toward economic liberalization, Gerwe was ready to seize the opportunity. In 1989, he set up StoryFirst Communications. The company’s initial goal was to manage Gerwe’s dream project: launching Radio Maximum, an FM radio station, at a time when no FM stations existed in Russia. It took two years of excruciating negotiations to obtain the licenses. Radio Maximum was supposed to start broadcasting on January 1, 1992, but Gerwe decided to start one week early with an unbroken, week-long series of Beatles songs. The station played its first song on December 25, 1991 — the same day that Yeltsin and Gorbachev officially dissolved the Soviet Union. That first song was “All You Need Is Love.” The second was “Back in the USSR.”

With an FM radio station, StoryFirst had the credibility to move on to bigger and better things. Gerwe and the other investors wanted to start a Russian TV network. Of course, this was a massive undertaking that required B u s i n e s s SEPTEMBER 2004 PASSPORT 21 political finesse, because they had to obtain licenses from regional authorities. So Gerwe decided, early on, to make his network entertainment-only. This way, he could present it as a reliable partner with a transparent business model and no political agenda. “Our most important advantage was that we were always focused on the business side of it,” says Gerwe. “We would make decisions based on what was profitable for the network — rather than spending a lot of money for some documentary that was critical of the governor to get him unseated in the next election.”

Showdown with an Oligarch

STS came into existence in 1996. But soon after it started broadcasting, Gerwe had a run-in with an oligarch.

In 1997, he got a call from Russian media mogul Vladimir Gusinsky, who owned the rival NTV network. Gusinsky announced that he wanted to buy STS. Gerwe agreed to meet the billionaire, but when the two met, it became clear that Gusinsky was offering only a tiny fraction of what STS was worth. “It wasn’t even close,” says Gerwe. Then Gusinsky dropped a bombshell — he said that if Gerwe wouldn’t sell STS, Gusinsky would hire away all of Gerwe’s top managers, and STS would lose its regional broadcasting licenses. Like Don Corleone in “The Godfather,” Gusinsky was making an offer that Gerwe couldn’t refuse.

And yet Gerwe did refuse to sell. It didn’t take long for the consequences to strike. The next day, the entire top management team at STS resigned — Gusinsky had already made a deal with them behind Gerwe’s back. And sure enough, STS licenses soon came under attack from regional governments throughout Russia. Gerwe went into damage-control mode; he spent the next three years fending off the legal attacks, while trying to rebuild his management team. “We ended up keeping the company together,” says Gerwe, “and I think we actually strengthened it.” As for Gusinsky, he was ultimately chased out of the country in a politically charged court case. But despite their clash, Gerwe is charitable in hi assessment of his vanquished rival. “Actually, he’s a very talented man,” says Gerwe.

After surviving the takeover attempt, STS was battered by the 1998 financial crisis, which knocked the bottom out of the TV advertising market. It was only saved by a group of investors, including Delta Capital Management, who saw potential in the fledgling TV network. Since then it has recovered steadily. The TV advertising market has rebounded to over $1 billion a year, and STS has enjoyed strong ratings. Some of the hit shows which have propelled the network into the number-three spot include “Details,” a popular talk show, and the HBO hit “Sex and the City.”

STS has also benefited from improvements in the Russian business climate. According to Gerwe, it’s far easier to be an honest, law-abiding businessman today than it was in the early 1990s. He points to the example of tax reform. “In the early days,” he recalls, “Russian taxes were so punitive and hard to understand that you really couldn’t pay your taxes honestly.”

But life hasn’t just improved for large corporations — things have gotten better for Russian TV viewers, says Gerwe. Audiences can now choose from a variety of slickly produced Russian-language shows filmed at local studios. This is a far cry from the early 1990s, when Russians were fascinated by any second-rate Western program that appeared on their TV screens. “Viewers got over that quickly,” says Gerwe. “Now, it’s basically movies and Russian serials. Good Russian series do just great numbers.”

Of course, Hollywood fare is still a big part of the STS schedule — besides the four Manhattan belles of “Sex and the City,” you can find the lovable alien “ALF” and countless American movies. But the biggest hits on STS are high-quality Russian productions. For example, STS recently aired the historical soap opera “Poor Nastya,” which was co-produced by Sony Pictures; viewers have also gone wild over adaptations of books by popular mystery writer Darya Dontsova. These domestically produced series are a key part of STS’s strategy; the network is trying to brand itself as the number-one network for original Russian-language programming. If you’ve been in the metro recently, you’ve probably seen ads from STS’s “Russian Stars” marketing campaign. The message is clear: STS is the network for Russians, by Russians and about Russians. So it’s a little ironic that the man behind STS is an American.

In recent years, Gerwe has been playing a lesser role at the network. In 2003 he stepped down as the president of StoryFirst, handing over the reins to Russian manager Alexander Rodnyansky. The move allowed him to spend more time with his wife and two children.

That doesn’t mean he’s ready to retire just yet. Now, as a private investor, Gerwe is building new enterprises throughout the Russian media landscape. Above all, he’s betting that cable TV is the next big thing and he’s helping to develop a nationwide cable provider to prove his point. Also, Gerwe has expanded into the magazine market by invested in the publishing house that produces, among other things, the classic Soviet-era magazine Ogonyok. So anything could happen when this dude from California turns the next page.